By Shelby Sebens | Northwest Watchdog
PORTLAND — With dwindling attendance numbers at a plethora of convention centers across the nation, more local governments are banking on taxpayers to foot the bill to build anchor hotels in the hope that if you build it, they will come.
It’s happened in San Diego, Nashville, Tenn., St. Louis – the list goes on. And it could happen here.
For decades, local government in the Portland area has tried but failed to get an upscale hotel adjacent to the Oregon Convention Center in the Rose Quarter district, which was built in 1987 and expanded in 2003. Officials are negotiating now with Hyatt over building a 600-room hotel, but with a big caveat – they want your money.
It’s likely local government officials will ask the state Legislature for money this session, on top of the $8 million in local grants already promised — $4 million from Metro (regional government for the Portland metropolitan area) and $4 million from the Portland Development Commission.
The Metro council agreed on Tuesday to ask for $15 million in lottery funds, but that number’s just a placeholder, officials said. They also want to consider refunding hotel room taxes to the hotel owner.
The hotel tax rate is 12.5 percent. Under the proposal, Hyatt could be reimbursed 11.5 percent because, by law, 1 percent must go back to the state for tourism promotion. Refunding the hotel taxes to Hyatt for 30 years, which is being considered as an option, would total roughly $111 million, officials said.
Officials said the hotel is needed to bring more conventions to the center, which has lost attendance since a $116-million expansion in 2003. Attendance at trade shows and conventions, which tend to pull in the most out-of-town guests who would be likely to stay in a hotel, dropped from 249,357 in fiscal year 2003 to 126,853 in 2011, according to fiscal analysis impact reports conducted by a consultant for Metro.
“They’ve told us, if we provide this they will come,” Metro spokeswoman Stephanie Soden said of convention clients wanting a nearby hotel.
Right now, convention center guests have to travel across the river for an accommodating hotel.
“Our clients tell us they need a hotel right across the street that’s convenient to run back and forth,” she said.
But critics say it’s just more public money down the drain. They point to an over-saturated market in which more and more cities have built and expanded convention centers, but have not seen the return on the investment.
“This is what happens,” said Heywood Sanders, a professor at the University of Texas at San Antonia who tracks the convention center industry. “There’s a cycle here. You build a center, it under performs what the consultant said so you then say how do we fix it.”
And the answer is more often than not, build a hotel.
This isn’t the first time Metro has made a push for public funding of an anchor hotel. From 2007-2009, they consider a publicly owned and financed hotel, but that effort failed.
Sanders, who is familiar with the Portland project because he has done work for local hotel owners who oppose publicly subsidizing a hotel, argued the need for public money shows the market can’t support a hotel in this location.
“Folks are kind of desperate to sweeten the deal,” he said.
Soden said it’s more difficult for convention center hotels to make money because they often have fewer rooms to make up for the required meeting space and banquet facilities. She pointed to a market study commissioned by Metro that shows a hotel would bring more conventions to Portland. But clearly that’s not enough for Hyatt to believe they should go it alone.
“The key ingredient is this public investment part,” Soden said.
The market study was conducted by Strategic Advisory Group, a common name in the convention center industry.
“It’s a very small world when it comes to the consultants,” Sanders said.
And Strategic Advisory Group nearly always recommends building the hotel, according to Forbes.com, which reported only four of 75 projects reviewed by the company were given a thumbs down. The article also quotes a company spokesman who says “you lose clients if you shoot down projects.”
Sanders said the drive to push forward with publicly funded projects stems from political pressure to fix up downtown districts or drive tourism.
“They keep trying,” he said. “Failure never breeds a serious reconsideration of the strategy. It simply breeds trying it again or doing more.”